There has been a huge fuss over the Land Registry house price index with a lot of people seemingly getting hot under and over the collar.

But why? What’s the fuss? Is the Land Registry really behaving “criminally”.

Put simply, the Land Registry has made a set of assumptions on how it will turn crude bits of data on house sales into a single number or set of numbers that theoretically measures where house prices are and have been.

This is just the same as other organisations. Each takes a view on what it thinks will be most representative of average house prices and builds an index on that basis.

Each will come up with a different figure. Ultimately all house price indexes are flawed. The best we can hope for is that they all, once lags are taken into account, roughly move in the same direction.

The recent fuss over the Land Registry figures appears to be about the exclusion of repossessions. But that decision is valid. The index still has meaning, it is still consistent. It just has a different meaning from an index that includes repossessions.

I quite like the fact that there are plenty of options to choose from in the indexes, it provides the unhealthily interested with a range of information from which to examine the market.

It is rather like telling the same story from different people’s perspectives. I like that.

For me the important issue is not the constitution of each index (providing the rules are open and honest and no deception is intended), but in how people read and interpret it.

House price indexes are just indicative. But because the market is in a rather chaotic at present, each index is not as indicative of the overall market as it might be in a more settled market.

To my mind, in times of confusion it is better to have a range of indicators rather than a series of carbon copies competing to be the most accurate universal measure.

So why the fuss?

Let’s explore narrow self interest as a suggested reason.

I remember being scolded by a house builder for using Nationwide figures and not the Land Registry data, which he believes provides “the only accurate picture”. I chose not too respond, but you can gauge my thoughts from the above.

Now I read similar comments, albeit from the opposite perspective, in the wonderfully rabid forums of the housepricecrash website. Here the idea that the Land Registry should be excluding repossessions has been greeted with outrage.

In fairness to the Land Registry it does publicise on its website how it comes by its figures and the fact that its index excludes “commercial transactions”. It seems a little strong to accuse them of a crime.

Clearly those who seek to reduce the publicised impact of house price falls will argue that the figures produced are too dramatic. For those with a vested interest in seeing a dramatic collapse in house prices the bigger the number reported in the media the better.

There is little doubt that the figures that are reported by the media influence the public’s sentiment and perception of where house prices are going and so do in some way influence house prices – both up and down.

But for me, personally, life is too short to argue the case that the apple is red with someone insisting that the pear is green.

Leaving such squabbles aside, there are a couple of more important reasons for the policy makers and industry practitioners to be thoughtful in their interpretation of house price data and in the index or indexes they choose as a measure.

Firstly, it would be foolish of policy makers to see house price falls as evenly spread. They are not, there are wide variations. And importantly the variations often have more to do with the sellers and buyers finances than the postcode.

The property industry maxim “location, location, location” should perhaps be readjusted just now to “circumstance, circumstance, circumstance”.
The vulnerable and overstretched will suffered most from this market collapse. On balance the unemployed or soon to be unemployed certainly will pay a heavy price. A point I feel those baying for blood in the housing market might bear in mind.

However uncomfortable it may be, those who might be deemed most responsible for the problems the market now faces are unlikely to be those who suffer most.

The second point that is worth noting is that the Land Registry data is used to feed automatic valuation models. These are used by lenders to judge on the mortgages they are prepared to grant.

Judging by the BBC’s recent File on 4 documentary, I suspect that if all repossessions were taken into account and the valuations held to by lender, in some areas of high levels of repossessions it might prove nigh impossible to get a traditional first-time buyer sale through without a deposit in excess of 50%. That is if they could get a mortgage at all to meet the seller’s lowest price.

The general point here is whether we should judge the value of a house on the financial and family circumstances of the owner (or should I say former owner) or on the location and general state of the building?

Even if we created a new house price index that could take account of the potential selling price of every house in the land it would be flawed, simply because it does take into account every house and most homes are not up for sale.

But beyond that, there is little way that a house price index could snapshot the precise financial circumstances of everyone who owns a home or wishes to sell or buy one. Unless a house price index can do that it will be flawed, if you what you expect it to do is to tell you how much a house is worth.